City of Seattle settles with developer over renovation of Magnuson Park building

The city of Seattle will pay $7.25 million to settle a lawsuit brought after the City Council changed an agreement with a private developer to renovate a derelict building at Magnuson Park.

The public-private partnership was approved by then-Mayor Greg Nickels and the council in 2008, but the developers’ plan to turn the aging building on the shore of Lake Washington into a mixed-use project that included a medical clinic and a fast-food restaurant drew strong opposition from neighbors and tenants.

The council changed the agreement to ban medical clinics and reduce the rent subsidies the city had originally granted the developer and refused to extend the lease so the developer could qualify for historic-restoration tax credits.

The developer sued in September 2011 for breach of contract, saying the city had made it impossible to successfully develop the project or obtain conventional financing.

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The proposed settlement, which still must be approved by the council, will buy out the interest of the developer and return the building, part of the former Sand Point Naval Base, to the parks department to manage.

The developer, Building 11 LLC, will complete renovations already under way, including seismic upgrades, new windows, lighting and a roof and will ready the building for future tenants. The city will pay for that completed work, including engineering and design of the 57,000-square-foot building.

City officials said that while the parks department wants tenants compatible with its focus on recreation and waterfront activities, the cost of the settlement means the city likely will have to seek commercial tenants.

“The reality is we may have to look at tenants who are not traditional partners of the parks department,” said Christopher Williams, acting director of Parks and Recreation.

Money to pay for the settlement would come from the city’s emergency subfund and be repaid through rent at the building.

An attorney for the developer said he couldn’t comment because of a confidentiality agreement with a mediator overseeing the settlement.

Under the original deal, the bulk of the developers’ rent was to be forgiven by the city over time until the costs of renovation and construction had been paid for. Rent would be reduced even more if developers offered space to nonprofits, artists and water-related activities.

The city said it didn’t have the money to make the needed building improvements.

In 2010, the developer sought amendments to the original agreement. It wanted to extend the lease to 40 years from 30 to take advantage of tax credits for historic preservation. And it said a day-care center that planned to rent space needed an outdoor play area as required by state law.

With neighborhood opposition to the original deal growing, City Councilmember Sally Bagshaw, chairwoman of the Parks and Recreation Committee, sought to revise the original deal on terms more favorable to the city.

The developer refused and sued the city, saying the changes it had sought to the lease were technicalities while the city wanted to change major terms.

Bagshaw, a former King County chief civil deputy prosecuting attorney, praised the proposed settlement.

“We couldn’t accept the deal they wanted. This puts the building back into parks’ control. That’s huge.”

Bagshaw said engineers hired by the city put the high-end price of rehabilitating the building at “substantially more” than the $7.25 million the city will pay to settle the lawsuit.

Space was cut in half and the rent raised for Sail Sand Point, which rents boats and offers lessons out of Building 11, when the developer took over the building. It was one of the organizations that fought the city’s original deal.

Sail Sand Point’s Executive Director Morgan Collins said Thursday that he hoped the building would remain dedicated to community uses with rents that his and other nonprofits could afford.

“I’m standing out here looking at the lake. The geese are flying over. The UW rowing team is out. We want to see this building become a community center. We hope we’re here for 50 more years.”